Why is San Diego’s Pension Settlement Estimate So Much Money?

In 2012, San Diego voters approved Proposition B, a pension reform measure that replaced pensions for new hires with a 401K plan. Seven years later, it is possible this reform will be completely unwound, because union attorneys have successfully argued that the city didn’t “meet and confer” with the unions before putting the reform measure on the ballot for voter approval.

As reported two weeks ago, the U.S. Supreme Court refused to hear the city’s argument that the San Diego’s mayor, who supported Prop. B, was exercising his right to free speech, and to force him to meet and confer with the unions prior to supporting Prop. B would have been a violation of that right.

Since then, the case has been returned to the original appellate court, which on 3/25 ruled that the city must “meet and confer over the effects of the initiative and to pay the affected current and former employees represented by the Unions the difference, plus seven percent annual interest, between the compensation, including retirement benefits, the employees would have received before the initiative became effective and the compensation the employees received after the initiative became effective.”

This ruling raises more questions as it answers. For example, does this ruling definitely require the city to pay those employees affected by Prop. B? This is unclear, because the next sentence of the ruling seems to offer the city a way out, by stating:

“The City’s obligation to comply with the compensatory remedy extends until […] Read More

A New Approach to Pension Reform Goes to Appellate Court

The recent ruling by the California Supreme Court in the case CalFire vs CalPERS has garnered much attention from pension reformers. While falling short of being a landmark ruling, the result was nonetheless encouraging. The court left open the possibility that vesting does not protect prospective benefits of current employees. The implications of that are left to related, still active court cases to decide.

Meanwhile, a completely different approach to pension reform has been hitting courts around California, centered on the argument that government agencies did not follow due process when approving pension enhancements. Between 1999 and 2007, one by one, nearly all of California’s government agencies enacted pension benefit increases of 50 percent or more. These increases were made retroactively, causing an actual financial impact well in excess of 50 percent. But when they did this, did they obey the law?

Three lawsuits have been filed by citizens taxpayers seeking to have pension increases overturned on the ground that they were adopted in violation of Section 7507, but each time, the trial court has dismissed the case on the ground that the lawsuit is barred by the three-year statute of limitations.

Convinced that the statute of limitations should not act as a bar to taxpayer claims to challenge these statutory violations, taxpayer/plaintiff George Luke raised the money to hire counsel, Robinson & Robinson LLP, to take an appeal from the statute of limitations ruling. If Mr. Luke is successful, it will open the door to every agency, or […] Read More

California Rule Does Not Protect “Airtime”

Earlier this week the California Supreme Court ruled in the case CalFire vs CalPERS. The case challenged one of the provisions of California’s 2014 pension reform legislation (PEPRA) which had eliminated the purchase of “Airtime.”

This was the practice whereby retiring public employees could purchase “service credits” that would lengthen the number of years they worked, which would increase the amount of their pensions, even though they hadn’t actually worked those additional years. While the amount these retirees would pay was always estimated to cover how much they’d eventually get back, with interest, in their pensions, in practice these estimates were always too low.

The plaintiffs in the case argued that airtime was protected by the “California Rule,” which, the argued, prevents pension benefits from being reduced unless some other benefit of equal value is offered in return. But the court found that the California Rule wasn’t applicable in this case, setting an interesting precedent for other pending cases.

According to attorney and pension law expert Jonathan Holtzman, this ruling is a breakthrough.

“This is the first case in which, ever, where the court has attempted to define a principled basis for vesting doctrine – to analyze in a rigorous manner the legal basis of the vesting doctrine,” Holtzman said, “Although it does not resolve the issue, the case leaves wide open the question whether vesting protects prospective benefits of current employees. It takes a narrow view of what constitutes […] Read More

California’s Government Worker Pensions Are Bankrupt

As reported today in Capitol Weekly, in a post entitled “CalPERS ignores Brown, delays pension payment” by Ed Mendel, the amount taxpayers will have to fork over to CalPERS next year will rise by $213 million, to a total of $3.7 billion. Governor Brown, quite rightly, believes the full amount of the necessary increase should have been assessed, another $149 million, instead of being “smoothed” over the next twenty years.

But CalPERS – the largest of over 30 major government worker pension funds in California, only manages about a third of the the state and local public sector pensions. And CalPERS is basing their increase on a lowering of their projected rate of return for their invested funds by one quarter of one percent, from 7.75% down to 7.5%.

People may debate endlessly over whether or not government worker pension funds in America, now managing over $4.0 trillion in assets, can actually earn 7.5% per year, every year, for decades on end. We have argued repeatedly that this rate of return is impossible to achieve any longer, because (1) high returns in the past depended on debt accumulation, which poured cash into the economy, which stimulated consumer spending, investing, and asset appreciation – enabling more borrowing – all of which caused investment returns to grow at levels that cannot continue now that borrowing has reached its practical limit, (2) our aging population means more people will be selling their investments to finance their retirements – including the pension funds […] Read More